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After a year of tight supplies and high borrowing costs, 2024 looks like a better time to buy a car.
The average transaction price of a new car in the U.S. in February was $47,244, down 2.2% from February 2023. That's also down 5.4% from the market peak in December 2022, according to Kelley Blue Book.
But new cars are still generally expensive; Prices are approximately 14% higher than in February 2021.
Incentives like rebates and rebates are slowly returning as inventory grows at most automakers, but prices may never return to pre-pandemic levels, experts predict.
“The bad news is we'll never go back to the old normal. The good news is within the new normal that we've come off the peak in,” said Pat Ryan, founder and CEO of CoPilot, a car shopping company. program.
“We now have this structural movement in new and used car prices that is making consumers' eyes pop,” he said.
Why are new cars becoming more expensive?
Ryan said basic components included in new cars, such as technology, as well as higher labor costs, are keeping prices high.
“Bending the fender is no longer a small thing,” he said. “If you hit someone with the fender of your new car today, instead of paying $300 in plastic that you have to replace, it might be $2,000 or $3,000 because you have…all these anti-crash kits and electronics.”
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For this reason, it is difficult to get a new model for less than $20,000 in the car market. It's also a response to consumers who prefer cars with features like automatic climate control, a touchscreen and parking sensors, Joseph Yuen, a consumer insights analyst at auto site Edmunds, previously told CNBC.
Because of these developments, new car prices “will never go back to what they were,” Ryan said.
The shortage of used cars “puts a limit” on consumption
The average transaction price for used cars in the fourth quarter of 2023 fell to $28,371, down 4.4% from $29,690 a year earlier, according to Edmunds data.
Yoon explained that “the decline in the value of cars has not been present” in the past few years for used cars due to high demand.
Used car prices are likely to remain “structurally higher” because fewer new cars were produced during the pandemic due to lockdowns and chip shortages. This means more drivers are keeping their previous cars, reducing the number of used cars available on the market, Ryan said.
“This shortage of used cars puts a limit on how much used cars can depreciate because… there's no used car factory, and you can't build more used cars,” he said.
However, newer used cars, or those up to three years old, depreciate in value, because it is directly linked to repossessed inventory in the new car market, Yoon said.
“A three-year-old car is a bit like a newer car,” he said.
Cars that are five to seven years old are still holding on to pandemic-era values due to reduced supply, he said. Since there are fewer older cars available, high demand keeps prices high.
Experts say that while prices are still high overall, drivers who need to replace their wheels may have a better chance this year.
When to buy a car in 2024
Ryan said incentives between April and July are expected to be the most attractive in the new car market.
Cars are often purchased in the spring and summer.
“To go for a test drive, you'll be outside looking at a car…it's kind of an outdoor activity,” said Brian Moody, executive editor of Kelley Blue Book.
While interest rates are still high, the Fed is expected to cut interest rates this year, which could “give people more breathing room,” Evan Drury, director of insights at Edmunds, previously told CNBC.
“Last year was ugly all around. At least there is a positive side this year,” he said.
Manufacturers are also ramping up incentives on some new cars. Modi said that since the deals are not “inclusive of all brands or even all cars within one brand,” shoppers will have to look out for those offers.
Drivers can get deals on used cars that are less than three years old, and car dealers are likely to be “a little generous during the holidays,” Yoon said.
“In general, whether new or used, dealers often offer incentives during big holidays like presidents [Day] Weekend,” he said.
The average transaction price for a one-year-old car fell to $38,720, down $6,763 from its peak of $45,483 in the third quarter of 2022, an “important shift,” he said.
